Time to rethink the mining workforce
Meyer Hosking & Associates has been recruiting senior management and executives in the mining industry for over 30 years. We have collectively experienced the hard times of the 90’s downturn and the good times of the post millennium upswing and now we find ourselves yet again at a low point in the commodity cycle. Understandably, those involved in commodities at this time may be experiencing some pain but we remain optimistic. We have been here before and we recognise the opportunities that exist now that can be used to advantage companies in the future.
Between 2002 and 2011 the mining sector was an exciting industry to be in with increasing commodity prices, activity and investment in the sector. Recruiters were extremely busy with the number of assignments often exceeding the supply of good quality people to service the ever growing employment demands. The growth of the industry was relentless and there was talk of a super cycle.
Since 2012 the world has changed and the reality is that the market has contracted significantly and this has negatively impacted most businesses operating in the sector. Low commodity prices have diminished profits from product sales and changed the economics of many projects by affecting marginal cut-off grades. These conditions are further perpetuated by the difficulties in raising capital to fund volume or endowment increasing projects leaving very few options for companies to mitigate expected losses. It is for this reason that companies rather than looking to expand operations and increase income are being forced to remove costs from their businesses in any way possible. The majority are achieving these savings by decreasing the number of people they employ. This has been witnessed across the sector with large scale layoffs affecting most companies from the small (some have been considered as the “living dead” referred to in Mining Journal’s November 27 edition) to the notable majors such as BHP Billiton, Acacia Resources, Glencore and Anglo American.
We believe that people, specifically talent, is as important in the industry now as it was 5 years ago. If one thinks of mining companies as having three basic assets, an endowment (minable commodity), money and people, then in our view a strategy that reduces costs by simply decreasing the number of employees (an asset) is fundamentally flawed. The status quo of the industry relies on people, not only to find and mine endowments but also to attract investment to fund projects and no company could survive without its manpower. It is evident that during cyclical downturns even good quality endowments (such as Rio Tinto’s Simandou and Reservoir Minerals) or positive cash generating assets cannot escape from market sentiment and experience funding pressure.
It is the talented people within mining companies which will determine the successful survival of their businesses. For this reason, companies should not only look to streamline their workforces at this time but also look at their workforce from a talent management point of view. It is also worth remembering that in favourable market conditions despite there being a reduced pool of available talent and potentially higher costs associated with recruitment, there is usually sufficient coverage in the system to reduce the impact of bad hiring decisions. Whereas in the current market where companies are being forced to reduce employee numbers and survive on a skeletal workforce the value that every employee contributes is significant and can dramatically affect productivity.
People shape organisations and should always be considered a valuable commodity no matter what state the market is in. Unfortunately this does not always affect the restructuring decisions that many companies make in times when the markets are down and as we have seen in the past, when markets are favourable companies have equally made significant recruitment mistakes by overpopulating their operations often resulting in substantial cost inflation and increased social and political pressures (particularly when the markets turn).
In recognising that there will come a time when prices rise again and there will be great demand for people to service the industry as companies swell, we believe that this is the time to best plan for the workforce inflation and to prevent the same mistakes of past employment surpluses. As workforces are being streamlined to maintain operations at the lowest possible employment levels, we are provided with a suitable base from which to plan the manpower needs for the future. Forecasting requirements for the organisation as it expands and managing the transition of talented workers through the organisation will not only help to motivate and retain high performing individuals but it will also provide a progression of leadership, provision for training of new employees and help to maintain an effective level of staff without introducing redundancies or oversupply.
Preparation for growth at this time is the key to advancing the company in the future and we believe that companies that manage this appropriately will be better positioned to avoid the pitfalls of the past and be able to significantly contribute to delivering returns on shareholder investments when the market does change direction.